Israel condemned new guidelines by the European Union on Tuesday which ban EU funding and cooperation with Israeli institutions situated in territory captured by the Jewish state in the 1967 Mideast war.
In order to obtain EU funding from 2014, Israeli projects will be required to sign on to a clause stipulating they operate within the country's pre-1967 borders and not in east Jerusalem, the West Bank or Golan Heights.
The clause is a powerful endorsement by the EU of the Palestinian demand that its future borders be based on the pre-1967 lines. The Palestinians are demanding that Israel stop building Jewish settlements in the West Bank as a condition for the resumption of peace talks which collapsed in 2008.
Israel says talks should restart without preconditions and that all core issues should be resolved through dialogue. It has frequently called on the Palestinians to resume peace talks.
Israel's deputy foreign minister Zeev Elkin called the EU decision a "very significant and worrying move."
"It certainly doesn't add to the atmosphere of peace talks. On the contrary, it fuels the Palestinian refusal to return to the negotiation table," he said Tuesday.
US Secretary of State John Kerry is back in the region this week for consultations on his attempts to restart negotiations between Israel and the Palestinians. He is not scheduled to visit Israel or the Palestinian territories but is set to meet with Palestinian Mahmoud Abbas in Jordan Tuesday evening.
A spokesman for the European delegation in Tel Aviv said a "territorial applicability clause" will feature in agreements between Israel and the EU from 2014. "Israeli entities situated in the Golan Heights, the Gaza Strip, West Bank, and East Jerusalem will not be eligible for EU funding," he said.
He emphasized that the guidelines would not affect Israel's private sector or companies but rather bodies like research centers or NGOs.
Many Israelis object to withdrawing from the West Bank or parts of east Jerusalem because the areas carry deep religious significance for devout Jews who consider it their biblical homeland.
Another concern is that violent groups could fill the vacuum if Israel withdraws from areas under its control, as was the case in the Gaza Strip where the Islamic militant group Hamas took over after Israel pulled out in 2005.